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Euro bulls set to test 1.1770 with support from cross rates

The EURUSD pair traded higher on Tuesday, September 29. The single currency rose 0.67%, to 1.1743 against the US dollar, and 0.45%, to 0.9124 against the pound sterling. The gains accelerated after the pair broke out of the resistance at 1.1685, which formed three days after the euro dropped to 1.1612. The breakout was driven by upside in the EURGBP cross pair. Cable came under pressure yesterday from the resumption of three-day trade negotiations in Brussels between the UK and the EU, as well as new statements from BoE governor Andrew Bailey.

Experts are hopeful that a divorce deal can be struck by October 15. Michel Barnier, EU chief Brexit negotiator, has shown willingness to begin work on a draft legal text. If an agreement cannot be reached, the parties will start trade according to WTO rules, which involve the application of all trade duties and quotas.

BoE governor Andrew Bailey pointed out that it will be necessary to do a lot of practical work before interest rates can be reduced to zero. Bailey noted that such a decision must be made public before negative interest rates are introduced. Here again, his investors did not understand. Either the UK Central Bank will introduce negative rates, or it won't. If so, then when?

Growth in EURUSD halted at 1.1745.

Todays macro agenda (GMT 3)

  • 10:20 ECB head Christine Lagarde speech
  • 10:55 Germany: unemployment rate and number of unemployed (September)
  • 11:00 Switzerland: ZEW and Credit Suisse economic expectations index (September)
  • 11:30 UK: BoE Haldane speech
  • 15:15 US: ADP employment change; 15:30 2Q GDP; Canada: GDP (July)
  • 16:00 Switzerland: NBS quarterly inflation report
  • 17:00 US: pending home sales (August)
  • 17:30 US: EIA weekly petroleum inventory status report
  • 18:00 US: Fed Kashkari speech
  • 20:40 US: FED Bowman speech

Current outlook

The euro pushed up yesterday's high of 1.1755 in Asian trading on Wednesday, September 30. Morning growth in major pairs and equity benchmarks may have been attributable to macro data out of China. The country’s September PMI came in at 51.5, up from 51.0 in August (vs. the forecast of 51.3).

However, the uptrend faded before long. A decline in US index futures triggered profit-taking on long positions. The euro exchange rate fell from 1.1755 to 1.1722 (-32 pps). At the time of writing, the euro was trading at 1.1739.

Market participants are currently focused on Friday's jobs report, Brexit negotiations and the coronavirus. The pandemic is a black swan for all markets. Mr. Biden may also be a black swan for the ruble and the dollar. If he wins the presidential election, he has personally pledged to name an African-American woman justice to the Supreme Court. He also promised to cancel tariffs with China and ramp up the scope of stimulus programs. And Russia will face new sanctions under false pretexts. The US presidential elections are five weeks away. Biden is still in the lead, according to the polls.

House Democrats on Monday unveiled a new package of measures to support the US economy amid the coronavirus epidemic, totaling $2.2 trln. Market participants now await a positive decision.

Virtually all euro crosses are trading in the green, while major currencies are stuck in the red. Traders are still trying to discern which way the market might move ahead of tomorrow’s nonfarm payrolls report. Any news could exert a strong impact on the market and lead to a shift in sentiment.

The euro bulls could infuse buyers with the stamina to reach a new high. Strong resistance will be encountered between 1.1770 and 1.1785. Gains above this range ahead of payrolls looks rather unlikely. After retracing to the previous high, a pullback to 1.1715 can be expected.

Support is at 1.1710. Should this level fail to hold, the decline in EURUSD will intensify with renewed vigor down to 1.1685 (yesterday this was the resistance level, while today it acts as a support and a target for sellers).


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